The Transmission of Commodity Price Super-Cycles

Felipe Benguria, Felipe Saffie and Sergio Urzua

The Review of Economic Studies, 2024, vol. 91, issue 4, 1923-1955

Abstract: We examine two key channels through which commodity price super-cycles affect the economy: a wealth channel, through which higher commodity prices increase domestic demand, and a cost channel, through which they induce wage increases. By exploiting regional variation in exposure to commodity price shocks and administrative firm-level data from Brazil, we empirically disentangle these transmission channels. We introduce a dynamic model with heterogeneous firms and workers to further quantify the mechanisms and evaluate welfare. A counterfactual economy in which commodity booms are purely endowment shocks experiences only 30% of the intersectoral labour reallocation between tradables and nontradables, and 40% of the within-tradable labour reallocation between domestic and exported production. Finally, the consumption-equivalent welfare gain of a commodity super-cycle is twice as large in the counterfactual economy.

Keywords: Commodity shocks; Local labour markets; Skill premium; Heterogeneous firms (search for similar items in EconPapers)
Date: 2024
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Working Paper: The Transmission of Commodity Price Super-Cycles (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:oup:restud:v:91:y:2024:i:4:p:1923-1955.

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